Over the next few weeks, we’re going to be doing a series on how to evaluate properties to make sure they’re a good bet for a hard money loan. There are a lot of different factors, and we’ll break them down one by one.
When it comes to real estate investing, the key element to understand is the worth of the property. For real estate flippers, this means both the cost of an un-rehabbed structure and its worth once it’s fixed up. The difference between these two numbers, minus the cost of the rehab, is the potential profit.
So, how can you tell if a structure is a diamond in the rough? First of all, figure out its ARV, which stands for After Repaired Value. The way to look at this is to find comparable properties in the area, or comps, as they’re known in the business. They should be rehabbed, too. Look for high quality photographs and upgraded floors, fixtures, and countertops. You’ll get the best information about what your structure will be worth from these. Be sure to take a look at comps that are in the same condition as your potential property is now. You don’t want to overpay.
You can find a lot of this information on the big free real estate aggregator sites. However, to get the best and most current information, a subscription to the MLS (multiple listing service) is a good idea.
Pay Attention to Details to Get the Best Return in Real Estate Investing
Here’s a checklist to make sure you’re really comparing similar properties:
-Is the property less than a mile from the one you’re considering?
-Did it sell in the last three or four months?
-Does it have the same number of bedrooms and bathrooms? What about square footage?
-Was it built about the same time?
-Are the neighborhoods alike, with the same school district? Similar crime rate? Proximity to shopping, transportation, and entertainment?
Yes, it’s a lot to think about. However, it’s vital that you do your homework so that you only take on properties that will make you a good return on your investment.
Next week, we’ll talk about how to estimate how much it will cost to fix up the property.